Hong Kong stocks tumble as faster inflation in China undermines policy easing bets to beat slowdown

  • China’s producer prices surged at the fastest pace in 26 years while an increase in consumer prices was the most since September 2020
  • BYD, Mengniu lead losers while Tencent rises before third-quarter earnings report later Wednesday

Stocks tumbled in Hong Kong and mainland China, with a benchmark of onshore stocks set for the lowest close in almost three months, as accelerating inflation undermined bets among some investors for policy easing to overcome a slowdown in the Chinese economy.

The Hang Seng Index slid 1.2 per cent to 24,520.94 at the local noon break on Wednesday. The Hang Seng Tech Index retreated 0.5 per cent while China’s Shanghai Composite Index slumped 1.2 per cent, heading for the lowest close since August 20.

BYD led the decline among the Chinese makers of electric vehicles trading in the city, tracking an overnight slump in Tesla. CEO Elon Musk’s Twitter followers asked the billionaire to sell a 10 per cent stake, while his brother offloaded some of his stake of the US electric-car maker.

Producer prices surged 13.5 per cent in October from a year earlier, the fastest pace in 26 years, the National Bureau of Statistics said on Wednesday. Consumer inflation quickened to 1.5 per cent, a level not seen since September 2020. Both figures exceeded the consensus projections.

Faster inflation at factory gates and retail stores is seen as limiting the room for the People’s Bank of China to ease its monetary policy to support growth and allay a credit crunch among the nation’s indebted developers. The economy has slowed over the past two quarters as a resurgence in Covid-19 cases led to stricter lockdowns and a power outage crippled production.

“We are in a scenario of stagflation” with slowing growth and rising prices, said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “But there will be no policy easing. That has significantly hurt the sentiment. The selling pressure is building up, there’s no good news for stocks and no one wants to step in now.”

Some 53 stocks on the 60-member Hang Seng Index dropped. BYD and China Mengniu Dairy were the worst performers on the city’s benchmark, falling at least 5 per cent.

Fantasia Holdings, the Chinese developer that has defaulted on an offshore bond, tumbled 46 per cent to HK$0.30, as the stock resumed trading after more than one month of suspension.

Tencent Holdings advanced 2.1 per cent to HK$473.80, before the WeChat operator reports its third-quarter earnings on Wednesday. The company, which has the second-largest weight in the Hang Seng Index, is forecast to make a 0.5 per cent gain in earnings from a year earlier, according to analysts tracked by Bloomberg.

Beijing Capital Jiaye Property Services flopped on its first day of trading in Hong Kong, losing 2.5 per cent from the initial public offering price to HK$8.07.

Three stocks made their debuts on the mainland exchanges. Shandong Longhua New Material surged 86 per cent. Jee Technology soared 73 per cent while Shenzhen Qianrui Precision Technology advanced 39 per cent.

Major markets in Asia all declined, while equities in Australia struggled to hold onto gains. US stocks fell overnight, snapping their longest winning streak since 2017.

Author: Zhang Shidong, SCMP

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